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The Do-Nothing Caucus

Karl Smith gets shrill about Raghu Rajan’s latest (pdf), which he calls “nonsense on stilts.” He’s right — and it’s deeply depressing that stuff like this passes for wisdom.

Rajan’s basic story is that we’re suffering from structural unemployment brought on by the need to move workers out of “bloated” construction, government, and finance. All I can say is, wow — has Rajan read any of the research on this subject?

I mean, maybe three years ago you could casually talk about turning carpenters into something else, or whatever, but since then there has been a lot of statistical work — and the sectoral reallocation story is a complete bust. Job losses have occurred across a broad spectrum of the economy, not just in a few sectors; for example, hardly any of the rise in unemployment can be attributed to construction.

Oh, and about those bloated sectors … finance maybe, although it never employed all that many people, but what exactly would make you believe that government or, at this point, construction are still bloated? Here’s employment in these sectors as a share of total employment:

Where’s the bloat?

Most important, as Karl Smith says, is the fact that Rajan’s injunction that we focus on long-run growth isn’t responsible — it’s deeply feckless. The truth is that we don’t know much about promoting long-run growth, whereas we know a lot about promoting short-run recovery — which is a very different problem. In practice, stroking your chin and talking about the long run is mainly an excuse for doing nothing.